19th March 2014
The Chancellor’s budget announcement that restrictions on pensions access are to be lifted have been slammed as “dangerous,” “short sighted” and “ill-conceived” by the chief executive of advisory firm deVere.
Nigel Green, the founder and CEO of deVere Group says that anyone over the age of 55 will from next year be able to take their entire pension pot as cash, depending on their marginal rate of income tax.
Green says: “This move to scrap the restrictions is in direct conflict with the spirit and purpose of pensions – which is to provide the individual with an income throughout their retirement. It’s a depressingly short sighted approach from the Treasury, which will be hoping to raise additional tax revenue in the short-term by allowing a greater number of people to receive all their pension funds in a lump sum.
“But should these people run their savings dry in the early stages of their retirements – as I suspect many will do, who will fund them? How will any of their potential housing, medical or care costs be financed for instance? It will, in the majority of situations, be down to the State – which is already in the midst of a deepening, and therefore increasingly costly, welfare crisis due to the ageing population.
“This policy of allowing a full drawdown is extremely dangerous and ill-conceived for both individuals, who are considerably more likely to become financially dependent on the State, and the wider economy, which needs the population to be as financially independent as possible to secure long-term stability, growth and competitiveness.”
However, Green champions plans presented in the Budget to stop forcing individuals to buy an annuity at retirement. He says: “Releasing people from buying annuities should be welcomed. With many of today’s working population likely to spend three decades in retirement, it’s imperative that all possible barriers to saving adequately for older age are removed. This measure encourages people to save knowing that they can access the full capital rather than purchase an annuity, which have been offering very low returns in recent years.”
Policy will even things up between better off and middle ground
However not all pension advisory firms agree. Andrew Roberts, partner, Barnett Waddingham says the policy will even things up between better off and middle ground savers.
“Freeing up people’s drawdown pots will bring down costs and allow more holistic planning in retirement which should be good news for pension savers. It will also deal with the discrepancy whereby middle-ground savers are locked in, yet low savers or high savers have been able to freely access their pensions via trivial commutation or flexible drawdown respectively.
“If uncapped drawdown is being brought in, then let’s simplify things by getting rid of the farcical second lifetime allowance test at age 75. This is complex to explain and everyone can avoid it by drawing any excess growth prior to age 75 anyway. Hopefully the Finance Bill will deal with some of this detail.
“We have clients who are earning more in interest, perhaps from property rents, than they are allowed to draw under their capped drawdown plan. They will be very happy being able to draw as much as they want. It will also address those in ill-health who could draw more under an enhanced annuity than under normal drawdown, and will mean that scheme pension under SSASs and SIPPs is no longer needed as a route to drawing higher pension. Those drawing a scheme pension from a SSAS or SIPP (rather than using drawdown) should lobby to be able to transfer into this new version of drawdown.
“There’s been confusion about increasing the capped rate whilst at the same time introducing flexible drawdown for everyone. This is because the rules are being relaxed temporarily until 6 April 2015 when the uncapped drawdown rules are introduced. Until the – from 27 March 2014 – maximum drawdown rates will increase to 150% of annuity rates and flexible drawdown will be available for those with secure pension income of just £12,000.
“This interim step seems a little unnecessary. Other than placating pensioners a year earlier, it seems to add extra complication for little gain. Pension providers will have to update documentation that they know will have a limited shelf life and issue revised drawdown certificates, and advisers may have to revisit drawdown advice for one year only.”
But age at which you can access your pension will rise long term
“Finally, hidden away is the increase in minimum pension age from 55 to 57 from 2028 with minimum pension age being linked to state pension age going forward. There have been calls for earlier access to pensions – to help stem the flow of those wanting to liberate their pensions. This goes against those calls but the change is a long way hence. In the meantime, those desperate for extra money will be able to draw extra legitimately from their pension scheme once they reach age 55 (or earlier on ill-health). I wonder if there will be a flow of ill-health requests as a means of liberating pensions,” says Roberts.